Let
me say at the outset that RBC supports the Government of Canada's initiative to
bring greater clarity to the merger review process. I believe we are in agreement
that the existing process is not clear. This causes confusion for members of our
industry and may result in decisions that are not in the interest of clients,
employees, shareholders or the Canadian public. In addition, because the current
rules do not provide clarity, there is uncertainty about outcomes. Uncertainty
is a barrier to the growth and prosperity of the Canadian financial services industry.
We support all efforts to not only determine whether mergers are in the public
interest, but also to establish guidelines and definition around this process.
This is essential to good business decision-making, as well as sound public policy.

In particular, you have asked us for views on the major
considerations that should apply in determining the public interest implications.
As set out, the merger review process already addresses the public interest in
two ways: The Office of the Superintendent of Financial Institutions will assess
the impact of any transaction on the safety and soundness of Canadian banks and
the Competition Bureau will review the impact on competition in Canada.

There
are however some additional areas of public interest that I will address in my
remarks:

First, I believe mergers should be
examined in terms of their long-term impact on Canada's future prosperity and
standard of living. Specifically, we should be looking at whether the creation
of larger, more internationally competitive financial institutions would enhance
Canada's economic growth.

Second,
I think it is important to consider how mergers would impact Canadians with respect
to access to and choice of financial services. In particular, we need to look
at the total spectrum of delivery channels and providers, and understand how new
technology and existing competitors fit into the equation.

Third, I believe it's important to look at the transitional issues caused by mergers
in terms of their short and long-term implications. For example, what impact will
mergers have on the number and quality of jobs in Canada?

And fourth, I believe it is in the public's interest to have a merger review process
in Canada that is consistent and competitive with other countries. Specifically,
we need a process that has clarity, transparency, and predictability and can be
completed in a reasonable time frame.

I
would like to say up front that, in my opinion, consolidation of the financial
services industry would be strategically good for our country. Increased scale
is important for the continued health and development of our industry, both in
Canada and increasingly in a North American market. Even with mergers, Canadians
will have access to an extremely competitive financial services industry and will
receive the benefits of increased scale. Consolidation will also help the industry
build efficiency and profitability, which is good for clients, our international
standing and our reputation as stable counter-parties.

However,
I cannot and will not suggest to your committee or the Canadian public that bank
mergers do not need to be carefully managed. There are concerns relating to execution,
short-term job dislocation, head office reductions, service disruption, and impact
on our communities. However, we believe these concerns can be managed in a way
that meets the public interest and delivers the long-term benefit of strengthening
the Canadian financial services industry.

With that background,
I'd now like to return to the four points I have identified for discussion, starting
with the long-term impact of mergers on Canada's future prosperity and standard
of living.

1. Impact on Canada's Future
Prosperity

Financial services is an important industry
for our country. It contributes to the creation of long-term growth prospects
for Canada both directly, as one of Canada's world-class industries, and indirectly
as an important contributor to the success of other Canadian firms.

Banks
have over 8,300 branches and more than 16,800 ABMs across Canada. We provide financing
and credit to Canadian individuals and businesses. We are large employers - with
over 235,000 employees in Canada and an annual payroll of $15.8 billion. And the
six largest banks paid $4.8 billion in Canadian taxes last year.

We
all know that countries need strong, viable financial services industries to support
economic growth and prosperity. As I have stated before, I believe that a sectoral
strategy for excellence is crucial to improving Canada's productivity and advancing
the country's prosperity agenda. I also believe that business, government and
other key constituents must work together in partnership to develop the right
policies and macro-economic climate for our key industries. We have an opportunity
to co-operatively develop financial services policy that gives our country and
our industry a competitive advantage and facilitates increased competition.

Canada's
financial services industry is among the best and most competitive in the world.
Canadian banks offer very price competitive services when compared with our U.S.
counterparts, and do so on a convenient, nation-wide basis. According to a recent
report by Standard & Poor's, Canada has one of the most efficient banking
systems in the world, with leading-edge infrastructure, good management controls,
very competitive lending spreads, and competitive service fees. Canada's financial
services industry is among the best in the world for many reasons, including because
government and the banks have worked together.

With these
strengths, Canadian banks have the potential to be globally strong and to reap
the economic benefits for our country. One might ask why, if our industry is so
good, should we be concerned with improving it and why have we not been able to
take advantage of our potential?

The reality is that,
despite having a strong foundation on which to build an internationally competitive
industry, Canadian banks lack scale and capital and are becoming less globally
relevant. What potential contribution can bank mergers make to the international
competitiveness of Canada's financial services sector and to the international
competitiveness of other Canadian firms?

First, they can
help achieve the scale required to continue to provide individual Canadians and
businesses with internationally competitive services. If one looks at the top
20 financial institutions in the world by market capitalization, virtually all
of them have been active in consolidation in their domestic markets.

Second,
Canada needs internationally competitive industries - they generate the capital
and jobs to support ongoing economic vitality. They are key to maintaining a level
of investment and innovation that keeps bright young people in Canada and generates
the overall employment creation that any country needs.

Third,
in our experience, consolidation leads to competitors with a broader array of
products and services. Economies of scale and scope mean they are more efficient
with lower unit costs. This offers Canadians the potential for lower prices and
greater choice. For example, there were concerns about competition when the Canadian
banks entered the mortgage, retail brokerage and mutual fund markets. Instead
we saw increases in volumes, lower prices and greater product variety. The fact
that banks cannot sell insurance through their bank networks does, in my view,
a disservice to Canadian consumers. Professor James McIntosh, who will be addressing
this Committee later, has outlined in the past an analysis showing the benefits
for Canadians that would arise from bank mergers.

I believe
that innovation is key to long-term growth for Canada; a view I know is shared
by the federal government. Many factors are at work here, but clearly we need
to have the investment resources available to fund leading development in technology.
Mergers reduce duplicate investment, freeing up resources to invest in additional
innovation. RBC spends just under $2 billion per year on information technology.

About
15% of that number (or $280 million) is spent on new development. If our maintenance
dollars were spread over a bigger base, allowing spending on new investments to
increase, this would contribute to innovation in our industry and in our country.
Not only would this result in growth and productivity for Canada, it means additional
jobs in high value and professional areas.

Consolidation
would also help support the future growth of our industry. It would give financial
institutions greater financial strength to expand outside Canada, where relative
size directly impacts investments and acquisitions and the ability to advance
international growth strategies.

We believe the industry's
expansion in the United States is good for Canadians. It will allow us to increase
scale and spread our overheads over a wider base. Our resulting improvement in
cost structure will mean more competitive pricing in Canada. In addition, there
are significant spin-off benefits to the economy from building strong, globally
competitive companies. Financial institutions need to expand internationally to
grow and continue to provide a healthy return to the millions of Canadians who
directly or indirectly invest in our shares.

Analysts understand
this, and understand the challenges we face in seeking to grow abroad because
of our relatively small size. The traditional discount on Canadian bank stocks
attributed to slower growth rates and uncertainty over consolidation attests to
this.

2. Access & Choice in Financial
Services

The next area of public interest I would like
to address is the implications for Canadians regarding access to and choice of
financial services.

Understandably, Canadians are concerned
about the effect of consolidation on competition in our industry. The Competition
Bureau review set out in the merger review process will ensure that there is adequate
competition for Canadians. As well, there has been a lot of discussion about how
any change might impact the access that Canadians have to financial services and
the availability of credit, especially for small business.

It
is our job to manage our total distribution network efficiently so clients have
reasonable access. Almost 95% of transactions now occur outside our branch network
where we have and will continue to invest in alternative distribution channels.
However, we know that despite this incredible increase in the use of ABMs, online
and phone banking, 70% of our clients still visit our branches at least once every
three months for advice, to handle complex transactions or to resolve issues.

Over the past years, we have expanded our mobile sales
force significantly to provide our clients with investment and lending advice
at times and locations that they find convenient. Mobile sales forces, online
and phone banking help provide service to clients who might find coming to a branch
difficult, for example, Canadians with disabilities or those located in remote
areas. We recently announced capital investment plans for our branch network,
in part, to address access needs and we are testing alternative ways of serving
lower income Canadians. For example, our "Cash & Save" location
in Toronto was developed in partnership with St. Christopher House and the local
community.

In summary, increased investment in alternative
channels as well as our core branch network is a continued priority. Clearly,
we must address the issue of access for Canadians, as part of any merger initiative,
through continued expansion of new distribution and by encouraging competition
through the sale of branches. Many institutions have indicated a desire to acquire
branches as well as infrastructure in the event of consolidation. I don't believe
that anyone in the industry would be against a constructive discussion of remedies
to deal with this issue.

Next, I'd like to address the
issue of availability of credit from two perspectives - first, small and medium-sized
business. Another key issue for Canada is that we must improve our ability to
grow our small and medium-sized enterprises, and to develop more market and industry
leaders.

It was in the interest of addressing this issue
that RBC Financial Group worked with Canadian Manufacturers and Exporters, and
the Canadian Federation of Independent Business to study how Canada can help its
small and medium-sized business enterprises prosper and grow. That study can provide
valuable input for this Parliamentary review process. While we are not perfect,
small and medium-sized businesses are well served by the Canadian banking industry,
and we all want to continue to contribute to the growth of this important sector.
Our study shows that loan availability and competitive pricing in Canada is strong
and that entrepreneurs are accessing a wide variety of financial providers. While
there is a shortage of higher risk debt and venture capital, mergers will not
impact this issue.

Large business is another issue. Large
corporations recognize that more internationally competitive banks would be better
positioned to meet some of their needs; however, they also express concern that
consolidation among the large banks in Canada could restrict access to credit.
This would be a valid concern, if the market for credit were limited to the "big
five" Canadian banks. But, in reality, it is not, nor should it be. Large
corporations have access to capital markets and to foreign banks as sources of
financing for their growth initiatives and these markets are very competitive.
Although increased efficiency and larger capital bases would enhance the ability
of a merged Canadian bank to lend to large corporations, consolidation may impact
credit limits. Developing broader capital markets and increasing foreign competition
are viable and necessary solutions to this issue regardless of mergers.

3. Transitional Issues

The
third area of public interest I'd like to address concerns transitional issues
such as employment.

As I have pointed out, the financial
services industry is a large employer in Canada, and the potential for job loss
due to consolidation is, of course, a concern. In the event of a merger, the absolute
number of jobs would decline initially, as duplicate processes are brought together.
However, it is our assessment that the industry would be able to re-deploy many
of the employees whose positions become redundant through natural attrition. For
example, at RBC we need to replace 2,000 jobs a year in Toronto alone.

In
addition, the greater investment capacity of a merged entity offers the potential
to create higher value jobs in the areas of research and technology development,
which will have a positive impact on Canada's productivity. As banks grow internationally,
we will continue to create jobs in Canada. For example, as a result of our expansion
in the U.S., we have created information technology and call centre jobs in Canada.

We
have seen a definite trend to upgrade jobs over the past ten years and I have
no doubt consolidation would strengthen it. Conversely, I believe that maintaining
the status quo could have serious negative implications for employment in our
industry. If implemented in a manner consistent with the public interest, consolidation
in financial services has the potential to build strong, viable, competitive businesses
with the ability to make the strategic investments necessary for Canada's future
growth and productivity, while at the same time ensuring that Canadians continue
to have access to competitive financial services. The key is to ensure an effective
process.

4. Clear & Timely Merger
Review Process

Which leads me to my last point, the
merger review process.

The process as currently laid out
requires merging banks to prepare and provide a vast amount of information. Application
must be made to the Office of the Superintendent of Financial Institutions, the
Competition Bureau and the Minister of Finance.

In addition,
the merging banks must prepare a Public Interest Impact Assessment, which will
be a basis for public review of the proposed merger by this Committee and the
House of Commons Finance Committee. Reports from OSFI and the Competition Bureau
to the Minister will also be made public, and considered by the parliamentary
committees before they report to the Minister. Following all of this, the Minister
will make a decision as to whether any public interest, prudential and competition
concerns are capable of being addressed. If so, then remedies may be negotiated
and ultimately enforced. This bank merger review process is more complex, difficult
and time consuming than what many of our foreign competitors face in their home
markets. There is clearly a need to ensure that the best interests of Canadians
are addressed; however, I am concerned about this process for a variety of reasons.
The process, and in particular, the public interest aspect of it , has the potential
to render the process unworkable as a practical matter, despite its broader merits.

Of course, we cannot expect the outcome of the process
to be pre-determined. However, as the CEO of a large financial institution, I,
together with the Board of Directors, have a responsibility to our employees,
clients and shareholders to make a considered assessment of the likelihood of
successfully completing a transaction before we allow the institution to undertake
all the workload associated with a proposed merger. Without clear guidelines,
which set out the criteria for the Public Interest Impact Assessment, including
how the cost and benefits are to be weighted to arrive at an overall result, banks
proposing to merger will be uncertain as to the likelihood of success. If the
merger review process is unduly protracted, the result could easily impair the
institutions involved and have negative implications for the overall industry
and the Canadian public.

Therefore, our request of you
is for greater specificity around the overall process and applicable criteria.
We ask for clearer guidelines of what is expected. In particular, we ask for public
interest criteria that do not include the issues that will be addressed by OSFI
and the Competition Bureau. We need criteria which are sufficiently well defined
so that we can make informed business decisions and give us a framework to structure
transactions.

This process must be clear, transparent,
consistently applied and completed in a timeframe comparable with most public
market transactions. We need a process that fosters predictability so we can make
informed business decisions. In addition, we believe that any discussion of remedies
should precede the public interest elements of the process, because remedies are
integral to addressing public interest concerns.

We ask
the committee to recommend rules that enable individual banks to make judgements
and decisions. This is what we hope results from this consultative process. From
a prudential standpoint, we do not believe that an open-ended process in which
there is no ability for the industry to predict the outcome is in the public interest.

The government has acknowledged that mergers are a legitimate
business strategy for banks. However, the merger review process has the effect
of discouraging banks from pursuing this strategy. This discrepancy between policy
and process needs to be addressed. This is what we hope results from this consultation.

Conclusion

In conclusion, I would like to reiterate our support
for your efforts to improve clarity around the issue of financial services consolidation
in Canada and allow us to make the strategic choices necessary to ensure the ongoing
viability of our industry for the benefit of all Canadians. Thank you for the
opportunity to meet with you today. We would be pleased to answer your questions.